As we’ve mentioned before, and as this year is unfolding, it looks like the Federal Trade Commission (“FTC”) is even more desperate to enforce the Restore Online Shoppers’ Confidence Act (“ROSCA”) than we are to find good skin care products. The FTC has begun expanding its enforcement of ROSCA into various industries, including now the skin care industry. Perhaps more importantly, the FTC is increasing the stakes on what constitutes adequate disclosures, forcing many marketers to spend less time looking in the mirror and more time looking at their online disclosures.
Last week, the Central District of California entered a Temporary Restraining Order and the FTC issued a complaint, alleging that since at least 2010, a number of defendants had marketed and sold skin care products on a variety of websites that ran afoul the ROSCA, the FTC Act, and the Electronic Funds Transfer Act (“EFTA”).
According to the complaint, the defendants marketed “risk free trial” offers to direct consumers to their websites, where consumers could pay shipping fees of $4.95 or less to receive a trial offer of skin care products. However, according to the complaint, consumers found themselves even more disappointed than those of us hoping to get Botox-like results from generic skin creams. The Commission alleged that the defendants failed to adequately disclose material terms of their sales offer, including the offer’s costs and negative option features; falsely represented that consumers could obtain their products on a “trial” or “risk free trial” basis for only a nominal shipping and handling fee; failed to obtain a consumer’s informed consent to the material terms, including the negative option feature of the transaction before charging the consumer; failed to provide consumers a simple method of cancelling their negative option continuity plan, and debited consumers’ bank accounts on a recurring basis without obtaining written authorization from the consumer or providing a written copy of the authorization to the consumer.
The FTC alleged that consumers who provided their credit card information soon discovered that they had been charged much more – typically $97.88 – after 10 days and were enrolled without their consent in subscription plans under which they were shipped more products and charged recurring fees. The complaint argued that the defendants made it difficult to cancel the memberships, stop or avoid the charges, or obtain a refund. The defendants allegedly failed to disclose that after 10 days, only unopened products could be returned for a refund and that no refunds would be provided for products returned after 30 days.
Of particular note to marketers who provide limited-time free trials, the FTC cracked down on the “risk free trial” because many consumers did not receive their products until after the initial 10 days had elapsed or nearly elapsed, meaning they could not return the products in time to avoid the $97.88 fee, and the defendants allegedly did not adequately disclose that they assessed consumers a “restocking fee” of up to $15 for returning the products.
Interestingly, the checkout page included in the complaint is one that many marketers may consider compliant:
Click here to view image
The FTC found the disclosure inadequate, because it failed to disclose: (1) that the 10 day trial period began on the day that the product was ordered; (2) that, to avoid charges, the consumer needed to return the product to the defendants before the end of the trial period; (3) that consumers could not return the product for a refund after 10 days if it had been opened; (4) that consumers could not return the product for a refund after 30 days, even if it had not been opened; and (5) that a restocking fee, usually $15, could be charged when a product is returned.
Further, the Commission alleged that the defendants lied on their report cards, allegedly misrepresenting themselves as accredited by the Better Business Bureau with an “A-” rating, when in fact, the company was not accredited and had a BBB rating of “F.”
Much like we hope our skin will be after using these products, the complaint makes clear that enforcing ROSCA is very much on the FTC’s radar, and it will be branching into new industries, and vigorously enforce as illegal what may have been previously considered compliant disclosures.